Disparity Study

The Cannabis Regulation and Tax Act (CRTA) requires the Cannabis Regulation Oversight Office (CROO) to commission a Disparity and Availability Study (Disparity Study) for the State’s adult use cannabis industry.  The Disparity Study was designed to evaluate whether there exists discrimination in the State’s cannabis industry and, if so, evaluate the impact of such discrimination and make recommendations for reducing or eliminating any identified barriers to entry in the cannabis market.  CROO commissioned the Nerevu Group (pronounced nay-RAY-voo), a 100% minority- and women-owned group of contractors and subcontractors, to conduct a cannabis Disparity Study on Illinois’ race- and gender-neutral adult use cannabis licensing program.  

The Disparity Study examined the 559 adult use cannabis licenses issued by the State to more than 400 businesses during the study period, which spanned from the start of adult use cannabis sales, January 1, 2020, through January 31, 2023.  The majority of the businesses that received one of these licenses were majority-owned by women or racial and/or ethnic minorities. 

The Disparity Study found that the CRTA significantly increased license ownership diversity for each license type with new licenses over the study period.  Over the study period, dispensary licenses went to 59% minority- or women-owned businesses compared to 21% for the medical cannabis market.  Additionally, minority- or women-owned businesses held 63% of craft growers, 61% of infusers, and 74% of transporters.  Nerevu further found that nearly 84% of the State’s Direct Forgivable Loans went to minority- or women-owned businesses.  These demographics make Illinois the most diverse cannabis industry in the nation.  

The Nerevu Group gathered extensive quantitative data—from applications, federal data sources, and national datasets—and spoke to over 200 stakeholders.  Nerevu analyzed all five adult use cannabis license types—dispensing organizations, craft growers, infusing organizations, transporting organizations, and cultivation centers—across all licensing rounds within the study period.  New licenses were issued for all license types except cultivation centers during this time.  By the end of the study period in October 2022, some of the new licenses became operational and began sales.  Nerevu conducted a brief review of 2023 data and noted significant growth in operational licenses and continued increased sales since the end of the study period.  After the Disparity Study, the State began another round of dispensary licenses which is not covered by this report.  

The CRTA establishes Illinois’ cannabis licensing program without race or gender preferences.  The licensing program is race- and gender-neutral with strong social equity components.  In the Disparity Study, Nerevu recommends that the State strengthen the CRTA’s race- and gender-neutral social equity provisions by (1) increasing access to capital, (2) simplifying cannabis management and administration, (3) unifying State agency policies and practices, and (4) expanding economic opportunities for new businesses.  All industry participants would benefit from these policies.  Nerevu also recommended commissioning another disparity study in 3-5 more years to assess progress for the new businesses.  

None of the recommendations are race- or gender-based and will instead target all cannabis businesses, including the new diverse licenses entering the adult use market.

To read the Executive Summary and the Full Report, please click the following links.  Below are some FAQs that further explain the Disparity Study, its purpose, authors, and conclusions.

The Cannabis Regulation and Tax Act (CRTA) mandates the Cannabis Disparity Study by the CROO:

410 ILCS 705/5-45(e)

The Illinois Cannabis Regulation Oversight Officer shall commission and publish one or more disparity and availability studies that: (1) evaluates whether there exists discrimination in the State's cannabis industry; and (2) if so, evaluates the impact of such discrimination on the State and includes recommendations to the Department of Financial and Professional Regulation and the Department of Agriculture for reducing or eliminating any identified barriers to entry in the cannabis market. Such disparity and availability studies shall examine each license type issued pursuant to Sections 15-25, 15-30.1, or 15-35.20, subsection (a) of Section 30-5, or subsection (a) of Section 35-5, and shall be initiated within 180 days from the issuance of the first of each license authorized by those Sections. The results of each disparity and availability study shall be reported to the General Assembly and the Governor no later than 12 months after the commission of each study.

The Illinois Cannabis Regulation Oversight Officer shall forward a copy of its findings and recommendations to the Department of Financial and Professional Regulation, the Department of Agriculture, the Department of Commerce and Economic Opportunity, the General Assembly, and the Governor.

Who is responsible for the cannabis Disparity Study?

Under the CRTA, the Cannabis Regulation Oversight Officer (CROO) is responsible for commissioning and publishing a Disparity Study for adult use licenses.  CROO commissioned the Nerevu Group for the cannabis Disparity Study after a public Request for Proposal process.

• The Cannabis Regulation Oversight Officer:
  

The Illinois Cannabis Regulation Oversight Office is a team within the Department of Financial and Professional Regulation (IDFPR) that serves a coordinating role among State agencies involved in cannabis regulation, including IDFPR which regulates dispensaries, the Illinois Department of Agriculture, which regulates cultivators, craft growers, transporters, and infusers, and other State agencies.  The CROO is appointed by the Governor and approved by the Illinois Senate. 

• The Nerevu Group:
  

Nerevu Group (pronounced nay-RAY-voo) is a data analytics firm that helps organizations uncover the insights hidden in their real-time data.  With a focus on development, data intelligence, and data strategy, Nerevu ushers its clients into the data-driven future.  Nerevu is a 100% minority-owned firm that has assembled an experienced and knowledgeable team of minority and women-owned contractors and subcontractors from Peoria, Decatur, Springfield, Chicago, and additional locations across the country. 

Which cannabis license types were examined in the Disparity Study?

CROO commissioned the Disparity Study to study adult use dispensary, cultivation center, craft grow, infuser, and transporter licenses.  The study assessed all licensing rounds within the study period of January 1, 2020, to January 31, 2023.

Per statute each license type issued pursuant to Sections 15-25, 15-30.10, or 15-35.20, subsection (a) of Section 30-5, or subsection (a) of Section 35-5, and shall be initiated within 180 days from the issuance of the first of each license authorized by those Sections.  Nerevu analyzed the entire Illinois cannabis market for this report instead of conducting separate studies for each license type.

How was the study conducted?

Nerevu gathered extensive quantitative data from various sources—federal, State, and private.  They then analyzed the demographics of the Illinois cannabis and related industries, and identified disparities by race, ethnicity, and/or gender in the Illinois cannabis industry relative to suitable comparison groups.  Nerevu supplemented this analysis with interviews and focus groups of 200 industry leaders, business owners, and cannabis license applicants.

In addition, Nerevu conducted an electronic survey of 60 cannabis applicants and analyzed data from CROO diversity surveys conducted over the past three years to identify whether disparities were the result of discrimination. 

How is “disparity” different than “discrimination” for a Disparity Study?

CROO tasked Nerevu to assess discrimination in the cannabis market in order to complete the statutorily required Disparity and Availability Study.  For legal purposes, a “disparity” is not the same as “discrimination.” A disparity is a quantifiable difference(s) between defined two groups which—if found—can be evidence of discrimination.  Discrimination is the unjust or prejudicial treatment of different categories of people.

For this cannabis Disparity Study, Nerevu compared the demographics in the Illinois cannabis market (called the utilization of minority- and women-owned businesses) to the demographics of cannabis license applications, to similar Illinois businesses, and to the medical cannabis market (i.e., the availability of minority- and women-owned businesses).  If the resulting ratio (utilization divided by availability) is less than 80%, the data can be considered as potential evidence of discrimination.

To assess whether the diversity was reflective of the potentially available industry participants, Nerevu examined multiple comparison cohorts and a sales metric.  If gaps were found, it might suggest discrimination and require further analysis.  First, the study compared the cannabis licenses to several potential comparison groups: completed license applications, medical cannabis licenses, and non-cannabis but similar business licenses (e.g., ADD) in Illinois.  The comparison groups were measured both by license counts and by sales data.  Further, the study discussed contextual data on economy-wide disparities in Illinois for wages, lending patterns, and business ownership.  Finally, the study discussed qualitative input from cannabis applicants, new and pre-existing cannabis businesses, and advocacy stakeholders to provide context to the quantitative data analysis.

What were the overall findings of the study?

Nerevu found that the State’s social equity policies resulted in the awarding over 50% of the newly issued adult use cannabis licenses to Minority- and Women-owned Business Enterprises (M/WBE).  

Disparity ratios were calculated for each license type by calculating utilization of M/WBEs divided by availability of M/WBEs in each comparison groups.  The ratios used both raw counts of licenses/businesses as an unweighted analysis and a weighted analysis using the sales volume for each business in 2022. 

When comparing adult use license holder counts to the applicant pool by race, ethnicity, and gender, only four of 40 measures—Hispanic dispensary, Asian and White women craft grow, and Black infuser license holders—displayed substantively and statistically significant disparity.  Nerevu did not find evidence that these disparities were attributable to discrimination against licensees or applicants.  When comparing the sales-weighted adult use cannabis to the medical cannabis demographics during 2022, no disparities were identified.

Nerevu further examined changes during the calendar year 2023 and found that, as of the end of 2023, 67 new Social Equity Applicant licensees were operational.  Social Equity Applicants’ businesses increased their adult use dispensary sales market share from 0.1% to 11.9% during those 12 months.  

The Disparity Study was commissioned at the start of 2023 and examined the adult use cannabis industry from the start of 2020 through January 31, 2023.  During that time, the industry was in rapid flux with multiple licensing rounds, lotteries, license-types, and opening businesses.  The period was also marked with litigation, a global pandemic, and a still novel market.  The first medical dispensary opened November 9, 2015, and the adult use market only opened on January 1, 2020, making the medical and adult use cannabis industries eight and two years old respectively at the start of this study.

What are the study’s recommendations?

Nerevu supported its quantitative data analysis with extensive interviews, focus groups, and surveys of adult use cannabis license holders and applicants.  They identified challenges that require policies to increase access to capital, simplify management and administration, unify State agency policies and practices, and expand economic opportunities for new businesses.  The solutions are not race- or gender-based and are intended to help all businesses.

To cultivate a more inclusive and equitable industry, Nerevu recommends the following:

1. Broaden the availability of financing
2. Unify data systems and additional data management
3. Consolidate regulatory structure
4. Conduct additional disparity studies
5. Various administrative changes
6. Strengthen State-industry collaboration

A full description of the recommendations, and the supporting findings, are available in the full report.

What is done with the results of the Disparity Study?

The results of the Disparity Study are reported to the Governor, the General Assembly, and published on the CROO website.  Any recommendations included in the Disparity Study will be sent to the Department of Financial and Professional Regulation, the Department of Agriculture, the Department of Commerce and Economic Opportunity, the General Assembly, and the Governor.

The results of the Disparity Study inform policymakers on whether discrimination exists in cannabis in Illinois, whether it impacts the industry, and what remedies could address the disparities.  This factfinding is a critical tool for better understanding equity in cannabis and how State policies address access and participation in the Illinois cannabis industry. 

What are the legal standards that the Disparity Study is trying to meet?

The cannabis Disparity Study conforms to U.S. Supreme Court legal standards for assessing race-based and gender-based government programs, articulated in the landmark case City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989).  Under the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution, government policies must withstand "strict scrutiny" or "intermediate scrutiny" to avoid constitutional challenges regarding race- or gender-based discrimination.  

In the 1989 Croson case, the U.S. Supreme Court outlined a "strict scrutiny" standard for reviewing race-based government policies, which requires a compelling government interest and a narrowly tailored remedy for furthering that government interest.  Similarly, gender-based policies face an “intermediate scrutiny” analysis, demanding an exceedingly persuasive justification of the policy and substantial relationship to its objective.  A compelling government interest in remedying discrimination may exist where there is a significant statistical disparity between the number of minority contractors willing and able to participate, and the number of minority contractors that are actually selected.

Once such a disparity is identified, court cases require analysis of whether the disparities (A) should be redressed through governmental actions, (B) such actions are likely to succeed, especially as compared to race- or gender-neutral policies, and (C) whether the actions are “narrowly tailored.” (See Midwest Fence Corp. v. U.S. Dep’t of Transportation, et. al, 840 F.3d 932 (7^th Circuit 2016).)  “Narrowly tailored” remedies are (1) not over- (or under-) inclusive, (2) better than alternatives, (3) fully necessary and will achieve aims, (4) have expiration dates, and (5) reassessed at set intervals. (See Midwest Fence Corp.) 

For this study, Nerevu employed a “strict scrutiny” analysis for both race and gender.  When considerations of gender disparity are subjected to the same metric as race in a strict scrutiny analysis, it also satisfies the lower standard of intermediate scrutiny.

Have other states conducted similar studies?

This Disparity Study is the first comprehensive cannabis-focused study in the nation.  Other Illinois’ agencies conduct Disparity Studies for different parts of State government.  These reports are often focused on government contracts and procurement.  These studies informed the Nerevu Disparity Study, which had to be adapted to focus on cannabis licensing.

Maryland has conducted a more limited, quantitative data-only cannabis Disparity and Availability Study.  Some local governments in other states, including San Francisco and Denver, have conducted similar studies for their jurisdictions.  New York has completed a demographic analysis, but not a Disparity Study, of their statewide cannabis industry that was primarily focused on registered agents and employees.

How often are Disparity Studies conducted?

The linked cannabis Disparity Study is the first comprehensive assessment across Illinois’ adult use cannabis industry.  In other areas of State government, Disparity Studies are conducted every 3-7 years.  Nerevu recommends conducting another study in 3-5 years when more new licenses are open, operational, and competitive in the Illinois market.

How can I ask more questions?

Please contact CROO at FPR.CROO@Illinois.gov.